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Learning Objectives

At the end of the class the students should be able to : 1- Define Financial Law? 2- Discuss the role and place of FL in the classification of law 3-List out different sources of FL. 4- Define Taxation and discuss its characteristics 5- Discuss Objectives of taxation
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Law can be defined as set of rules and regulations made and enforced by government that regulate the conduct of people with in a society. The law is a set of principles; rules and standards of conduct that:

1- Have general application in a society.

2- Are developed by legitimate authority for that society. 3- Trigger penalties when are they are violated. Or the law is set of rules enacted by legislature and endorsed by the head of the state.
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Function of Law 1- Enforcing standards of conduct and maintaining order 2- Promoting social justice. What else. 3- Maintaining order Rule of Law: refers to a political system in which all people within the system, including the most powerful leaders are required to follow the law. Furthermore they are all answerable to the system of courts that applies the law. In most countries constitution is the foundation of legal system.
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CLASSIFICATION OF LAW There are many ways to subdivide the law One way is to distinguish between substantive law and procedural law 1- Substantive Law usually set out the rights, duties governing people as they act in society. 2-Procedural law establishes the rules under which substantive rules of are enforced, e.g. how a trail is conducted.
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. :

Sources of Financial Law TBD inside the classroom

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MEANING OF TAX

Tax has become a part and parcel of all economic activities of human being. Every man, willingly or unwillingly, pays an amount of money in the form of tax on the products, income, etc. Students of business/ commerce, who deeply involve themselves in all the fields of buying and selling are in dire need of knowing about tax. The Government requires funds for the performance of its various functions. These funds are raised through tax and non-tax sources of revenues. In fact tax is the major sources of revenue to the Government. According to Adam Smith, a tax is a contribution from citizens for the support of the Government.
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Definition
Tax is a compulsory charge imposed by the Government with out any direct return or benefit. Or tax is a compulsory payment or contribution by the people to the Government for which there is no direct return to the taxpayer.

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GENERAL CHARACTERSTICS OF TAX.

Tax has the following characteristics 1- Tax is compulsory contribution 2- Benefit is not the Basic Condition 3-Personal Obligation 4-Common Interest 5-Legal Collection 6-Elements of Sacrifice 7-Regular and Periodical Payment 8- No Discrimination
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STAGE IN THE DEVELOPMENT OF LEVY OF TAX Present stage Compulsory payment of tax With out quid proquo Necessity to pay tax to The Gov is an Obligation 5 It is the duty to pay tax 4 Individual felt the need for sacrifice for the benefit of Gov. 3 Gov requested the public to pay in their favor. 2 Tax is considered as a gift 1

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Objectives of taxation

What are the basic purposes of levying taxes ? What are the more general objectives?

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1 -To support the operation of the government and to carry out the functions of the government such as national defense and providing government services. 2 - To redistribute resources between individual and classes in the population. (To support the poor by the taxes on the rich.) 3 - To modify patterns of consumption or employment within an economy by making some classes of transaction more or less attractive. 4 - To influence the macro economic performance of the economy. ( The governments strategy is called its fiscal policy.
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Kinds of Taxes
Tax could be imposed on, income, property, commodities etc. Taxes are sometimes referred to as direct or indirect. The meaning of these term can vary in different contexts, which can sometimes lead to confusion. Direct taxes refer to those taxes that are paid by the person who earns the income. By contrast the cost of indirect tax is born by some one other than the person responsible for paying them. ( buys is the real payer)
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Indirect taxes are sometimes described as the hidden taxes, because the purchaser of goods or service may not be aware of that proportion of the price is going to the government. If the impact and incident of tax fall on the same person, it is called direct tax. incidence means the final/ultimate resting place. the possibility of shifting the tax burden is too less or even (0%) in direct tax
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Merits and Demerits of Direct and Indirect Taxes. While framing the tax policy, the Government should consider not only its financial needs but also taxable capacity of the community. Besides the government has to consider some other principles like equality simplicity, convenience, and productivity. Thus to determine the appropriate tax system, various factors are to be considered.
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Tax systems may be summarized as follows: 1- Proportional Tax System (Flat Tax). 2-Progressive Tax System( Graduate). 3-Regressive Tax System. 1- Proportional Tax also called flat tax is a system that taxes all entities in a class typically either citizens or corporations at the same rate, opposed to graduated tax.

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Example of Proportional Tax System

Tax Rate% 20% 20% 20% 20% Amount of Tax 8,000 12,000 24,000 30,000

Tax Base 40,000 60,000 1,20,000 1,50,000

Merits
1- It is simple in nature. 2-It will avoid mistakes and drawbacks of progressive tax. 3-It is uniformly applicable.
Public finance , July,2008, Kabul university. By Associate Prof. A.Ltif Rahamni

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Demerits? What about inequitable distribution? 2- Progressive Tax System A progressive tax or graduated tax is a tax that is larger as a percentage of income for those with larger incomes. The term progressive refers to the way the rate progresses from low to high. Thus the progressive tax system can be defined as a system in which rates of taxation would increase with the increase in income i.e. higher the income, higher would be the rate of the tax

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Example of Progressive Tax

Tax Base Up to 1,00,000 1,00,000-1,50,000 1,50,000- 2,50,000 Above 2,50,000 Tax Rate -10% 20% 30% Amount of Tax -5,000 5,000+20,000 5,000+20,000+.

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Regressive Tax System

In regressive tax system the amount of tax is smaller as a percentage of income for the people with larger incomes. Many taxes other than the income tax tend to be regressive in practice. For example , most sales taxes and duty excise duty are regressive in nature, if they are levied on the goods of common interest.( since lower income people spend a larger portion of their income)
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Thus, regressive tax is a tax which taxes a larger percentage of income from people whose income is low. It places more burden on those with lower incomes. It is the system in which the rate of tax decline with the increase in the income or value of property. Larger the value of income or property, the lower the percentage that he pays as tax in regressive taxation. The tax rate decreases as the tax base increases
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Example of Regressive Tax

Tax Base 40,000 60,000 1,20,000 1,50,000 Tax Rate 20% 15% 12% 10% Amount of Tax 8,000 9,000 14,400 15,000

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Review Questions

1-Define tax 2- What are the characteristics of tax? 3- What are the objectives of taxation? 4-Narrate the Adams Smiths canon of taxation? 5-Explain 5- the principle of equity. 6-What are the kind of taxation? 7- What do you mean by direct and indirect tax?

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8- What do you mean by shifting of tax? 9- What are the merits and demerits of progressive tax? Essay Type Questions Describe the various canons of taxations. Bring out the distinction between direct and indirect taxes

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Kinds of Taxes Tax could be imposed on, income, property, commodities etc. Taxes are sometimes referred to as direct or indirect. The meaning of these term can vary in different contexts, which can sometimes lead to confusion. Direct taxes refer to those taxes that are paid by the person who earns the income. By contrast the cost of indirect tax is born by some one other than the person responsible for paying them. ( buys is the real payer)
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Indirect taxes are sometimes described as the hidden taxes, because the purchaser of goods or service may not be aware of that proportion of the price is going to the government. If the impact and incident of tax fall on the same person, it is called direct tax. incidence means the final/ultimate resting place. the possibility of shifiting the tax burden is too less or even (0%) in direct tax
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Merits and Demerits of Direct and Indirect Taxes. While framing the tax policy, the Government should consider not only its financial needs but also taxable capacity of the community. Besides the government has to consider some other principles like equality simplicity, convenience, and productivity. Thus to determine the appropriate tax system, various factors are to be considered.
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Tax systems may be summarized as follows: 1- Proportional Tax System (Flat Tax). 2-Progressive Tax System( Graduate). 3-Regressive Tax System. 1- Proportional Tax also called flat tax is a system that taxes all entities in a class typically either citizens or corporations at the same rate, opposed to graduated tax.

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Example of Proportional Tax System

Tax Rate% 20% 20% 20% 20% Amount of Tax 8,000 12,000 24,000 30,000

Tax Base 40,000 60,000 1,20,000 1,50,000

Merits
1- It is simple in nature. 2-It will avoid mistakes and drawbacks of progressive tax. 3-It is uniformly applicable.
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Demerits? What about inequitable distribution? 2- Progressive Tax System A progressive tax or graduated tax is a tax that is larger as a percentage of income for those with larger incomes. The term progressive refers to the way the rate progresses from low to high. Thus the progressive tax system can be defined as a system in which rates of taxation would increase with the increase in income i.e. higher the income, higher would be the rate of the tax

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Example of Progressive Tax

Tax Base Up to 1,00,000 1,00,000-1,50,000 1,50,000- 2,50,000 Above 2,50,000 Tax Rate -10% 20% 30% Amount of Tax -5,000 5,000+20,000 5,000+20,000+.

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Regressive Tax System

In regressive tax system the amount of tax is smaller as a percentage of income for the people with larger incomes. Many taxes other than the income tax tend to be regressive in practice. For example , most sales taxes and duty excise duty are regressive in nature, if they are levied on the goods of common interest.( since lower income people spend a larger portion of their income)
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Thus, regressive tax is a tax which taxes a larger percentage of income from people whose income is low. It places more burden on those with lower incomes. It is the system in which the rate of tax decline with the increase in the income or value of property. Larger the value of income or property, the lower the percentage that he pays as tax in regressive taxation. The tax rate decreases as the tax base increases
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Example of Regressive Tax

Tax Base 40,000 60,000 1,20,000 1,50,000 Tax Rate 20% 15% 12% 10% Amount of Tax 8,000 9,000 14,400 15,000

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Define Tax 2- What are the characteristic of tax? 3- what are the objectives of taxation? 4-What do you mean by shifting tax? 5-Explain the principle of equity. 6-What are the kind of taxation? Essay Type Questions 1- Bring out the distinction between direct and indirect tax. 2- Describe the various canons of taxations.
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Review Questions

Public and Private Finance

There are both similarities and differences between public and private finance Similarities: 1-Satisfication of human wants Individual is concerned with the personal wants, while the government is concerned with social wants, thus both the private and public finance have the same objectives.
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2- Balancing of income and expenditure Both individual and government have income and expenditures and trying to balance each other. 3- Borrowing a common feature. As and when the current income become insufficient to meet the current expenditures, both rely on borrowing. .

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4- Economic choice a common problem Both face the problem of economic choice, because in most cases their sources of revenue are limited comparing with their expenditures. Hence they have to satisfy the unlimited ends with limited means.

Dissimilarities between Public and Private Finance 1-Nature of Benefit: Private finance aims at individual benefits, but P/F is at collective..
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Adjustment of income and expenditure: In private finance the individual first considers his income and then decides about the expenditure. But in the case of public finance, the government first estimates the volume of expenditure and then tries to find out the methods of raising the necessary income.

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3-Postponement of Expenditure: In private finance, the individual can postpone or even avoid certain expenditure as he likes. But in the case of public finance ,the government cannot avoid certain commitments, like social welfare measures and thus cannot postpone certain expenses, like defense etc.

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4- Motive of Expenditure: In the case of private finance the individual expects return in benefit from the expenditure made. But the government cannot expect return in benefit from various expenditure made That is, profit or benefit is the motive of private finance whereas, the social welfare and economic development is the motive of public finance.
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5- Nature of Resources : In private finance, the individual have limited resources. They can not raise income, as they like. They do not have the power to issue paper currency. But . 6- Coercion: Private finance can not use force to get their income. But Publicity: Individual do not like to discolse their financial transactions to others. They prefer to keep them a secret.
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But the government gives the greatest publicity to its budget proposals and the allocation of resources, thus publicity strengthens the confidence of the people in the government. 7-Audit: In the case of private finance, auditing of the financial transactions of individual is not necessary. But the accounts of the public authorities are subject to audit and inspection.
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Review Questions

1-Define public finance? 2-Narrate the scope of public finance? 3-What are the similarities between public finance and private finance? 4-What are some of the factors that tend to induce waste in the government spending. Essay type Questions. 1- Distinguish between public finance and private finance? Explain the sources of revenue to government.
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of government? 2- How is our legal system organized.?

Essay Type Questions 1- How are laws made in various branches

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